Pending home sales for May in U.S. reach highest level in over 6 years

Pending home sales rose in May to the highest level since late 2006, implying a possible spark as mortgage interest rates began to rise, according to the National Association of Realtors.

The Pending Home Sales Index, an indicator based on contract signings, increased 6.7% to 112.3 in May from a downwardly revised 105.2 in April, and is 12.1% above May 2012 when it was 100.2. The data reflect contracts but not closings.

Contract activity is at the strongest pace since December 2006 when it reached 112.8. Pending sales have been above year-ago levels for the past 25 months.

Lawrence Yun, NAR chief economist, said there may be a fence-jumping effect.

"Even with limited choices, it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher," he said. "This implies a continuation of double-digit price increases from a year earlier, with a strong push from pent-up demand."

Yun upgraded the price forecast for 2013, with the national median existing-home price expected to rise more than 10% to nearly $195,000. This would be the strongest increase since 2005 when the median increased 12.4%.

Existing-home sales are projected to increase 8.5 to 9.0%, reaching about 5.07 million in 2013, the highest in seven years. It would be slightly above the 5.03 million total recorded in 2007.

The Pending Home Sales Index in the West jumped 16.0% in May to 109.7, but with limited inventory is only 1.1% above May 2012. The Northeast was unchanged at 92.3 in May but is 14.3% above a year ago. In the Midwest the index jumped 10.2% to 115.5 in May and is 22.2% higher than May 2012. Pending home sales in the South rose 2.8% to an index of 121.8 in May and are 12.3% above a year ago.